VantageScore 4.0, the fourth generation tri-bureau credit scoring model is now available to lenders. This latest version of VantageScore will set the new standard for credit scores, so it’s important to be aware of what’s changing and how it could impact your score—as well as the scores of prospective tenants.
Changes to the New VantageScore Model
As you likely know, credit scores are used to determine the likelihood of an individual paying back the money they owe. A higher score means someone is more creditworthy, while a lower score means they’re more likely to make late payments or default on their loan. Credit scores models are excellent predictive tools, but updating the models helps to improve their accuracy.
Although VantageScore 4.0 keeps the 300- to 850-point range, there are several major changes to be aware of. Here’s a breakdown of how the new model compares to other credit scoring models:
The most significant changes to VantageScore 4.0 are the use of trended data and the potentially lower impact of tax liens and judgments on credit scores.
Trended Data
What is trended data? According to VantageScore, it’s credit data that reflects patterns in a borrower’s behavior—essentially, how an individual borrows and repays credit over time. This can also include utilization rate (the amount of revolving credit a borrower is currently using, divided by the total amount of available revolving credit) trends. In contrast, other credit scoring models don’t have a “memory” when it comes to utilization rate; they look at your most recently reported utilization rate to calculate the credit score.
VantageScore 4.0 will be the first tri-bureau credit score model to include up to two years’ worth of trended data when determining credit scores. Since significantly more data is taken into account, this could affect your credit—positively or negatively—based on your past habits. The good news is that practicing good credit habits, such as making on-time payments, remains a strong component of the overall credit score, regardless of the credit model used. According to Jeff Richardson, Vice President of Marketing and Communications for VantageScore, those who make more than the minimum payments may have an extra advantage with the new model.
Tax Liens, Judgements, and Medical Collection Accounts
With the new model, tax liens, judgements, and medical collection accounts won’t damage credit scores as much. This is due to the stricter requirements for collecting tax lien and judgement data that TransUnion, Experian, and Equifax implemented in 2017. Since medical insurance can take some time to pay bills for consumers, medical collection accounts that are less than six months old won’t be taken into account. In addition, unpaid medical collection accounts won’t have as much weight in credit scores as unpaid non-medical collection accounts.
Greater Accuracy for Scoring “Un-scoreable” Consumers
Another change with the new model is that it will be able to score “un-scoreable” consumers more accurately. With other credit models, like FICO 8 and FICO 9, a lack of recent credit information can result in no score at all. For example, FICO-based scores can only score individuals who have had at least one account open for a minimum of six months, as well as at least one account that’s been reported to the credit bureau within the previous six months.
In contrast to previous models, VantageScore 4.0 will be able to score approximately 30-35 million consumers who were previously deemed “un-scoreable” using machine learning to find past credit data patterns. This will result in more accurate scoring for those who may not utilize their credit accounts often. This doesn’t necessarily translate to a higher score, however; credit scores will still be dependent on the available information.
These changes may affect your VantageScore credit score, but keep in mind that scores can still come from other models, such as FICO or proprietary models from banks or credit card issuers.
The Bottom Line
Although VantageScore 4.0 is now available, it may take some lenders time to switch over the model. In addition, some lending companies don’t use VantageScore to determine creditworthiness. Tenant Screening Center will be upgrading to the new model starting April 1, so you may notice some changes to your tenant screening reports in the near future. For more information, feel free to contact us at (800) 523-2381 or send us a message online.
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